Steve:
Welcome to Plan for Life. Now, episode one 16. We are checking in here on December the 13th. So we’ve got another, what do we got? Another 12 days before Christmas.
Dave:
Yep. And it’s a real cold December, whatever today is. What’s today, say the 13th.
Steve:
Yeah,
Dave:
Friday the 13th. And we’ve decided to do a podcast this day.
Steve:
It’s Friday the 13th. I didn’t even think
Dave:
About that. This could be a good episode.
Steve:
All right. Well, I’m not one for superstition, so it doesn’t bother me.
Dave:
I’m with you. I actually don’t believe in any of that stuff. It’s cold though this December 3rd. I mean, I think we’ve been spoiled by some of this, whatever you want to call it. Maybe it’s climate change. We’ve had, I could have sworn warmer Decembers. I recall playing golf in December the last couple of years, not this year.
Steve:
I always feel lucky if I’m able to sneak in December, January, February, March one golf Day
In each of those months. And I haven’t gotten one in December yet, but still hopeful that maybe it can warm up, sneak out there for one day. Well, it has been one heck of a year, Dave. It has been quite the year. So for those of you who haven’t been paying attention the last couple of years have been really good for risk-based assets. Well, I’ll go even broader than that and just say pretty much everything, but in particular for stocks and those higher risk assets. And I say it like that because I want to include things in there like crypto. I mean, I do want to talk about that for a minute. Not that I think it’s a big part of anybody’s or should be a big part of anybody’s portfolio, but it is a big part of a lot of the headlines and stuff that you read in the financial news. So let’s give a quick recap here. So like we said, December 13th, you’ll probably be listening to this next week, the Dows up 16% on the year s and p 500, up 26% Nasdaq up 32%. And for those of you Bitcoin holders out there, Bitcoin up 150%.
Dave:
That’s huge.
Steve:
Yeah. So the recap that we’ve been doing with people is, let’s just remember where we were two years ago right now. Two years ago we were sitting here, the s and p 500 in, I think it was late October of 22 was down 26% off of its high. And it did bounce back a bit, November and December of 22. But inflation was still running over 9% per year. And the Federal Reserve had just raised interest rates, 500 basis points in less than a year. So we’d gone from 0% interest rates to over 5%, and the consensus at the end of 22 was recession. We’re going to have a recession. I might’ve referenced this in another podcast, but Bloomberg did a survey of, I think it was 20 major economists out there, and it was unanimous. They all agreed going into a recession in the next 12 months. Well, we are 24 months later now and no recession.
So 2023, if you don’t remember what happened then? 2023 was a huge bounce back. It became clear we weren’t going into a recession. Stock market was up 26% in 23. So of course the predictions coming into 24. Okay, maybe we’re going to go up another 5%, another 8%. Hey, let’s be crazy and say we’re going to go up 10%. That was going out there. Oh, 10%. Oh, it’s not going to happen. It doesn’t go up that much after you’ve already gone up. Well, we’re sitting here a couple weeks left in the year and up another, I feel pretty confident it’ll stay up over 20%,
Dave:
Right? And it’s like for time goes by fast. I don’t know. I think the older I get, the faster time. It just seems like it was yesterday. We were telling, going through portfolios with our clients and saying, Hey, every sector is down.
This is 22. Those meetings, yeah, this is down, equities are down, bonds are down, everything’s down. You couldn’t escape. In fact, that was basically the feature that you couldn’t really escape a down in everything. And then now 23 and 24, it feels like markets are like football teams. If they were okay, now you’re having a down year, you get the first pick in the draft, the market’s more like you’ve had this down year. Now you get everybody’s first pick in the draft and now get all the first picks. Then you get 32 first picks in the draft. And then the bounce back has been not just a bounce back that we expected. I mean, let’s face it, we were telling everybody if the 22 expect a bounce back, because usually when things are down like this, it all comes back. But nobody expected this type of double year whammy, super bounce back.
Steve:
And who knows, we could be, we could be eating our words. We turn around the market plunges next month and all of a sudden, man, this looks really dumb that we’re sitting here saying, oh, look how much we’re up. But the market has done this before where the late nineties, I don’t want to draw too many parallels to that because of obviously what happened in the early two thousands. But the late nineties kept going up again and again and again year after year. And there’ve been many other times when it didn’t turn out to be a bubble that popped where the market continues to go up. So just because it goes up one year doesn’t mean it has to go down the next year. And the interesting thing about the way that markets move is most people know that the long-term average is that markets return somewhere around 10% long-term averages. But it’s actually very rare to have a return that’s around the averages. Most of the time, the returns, it’s much more common to have a return that’s plus 20 or minus 10. Those are more common than actually having a return of eight, nine, 10%.
So what’s the takeaway on there? Takeaway is you can’t predict it. And I’m going to talk a little bit more about Wall Street’s predictions for last year and for the upcoming year, but it would also be, don’t make too much out of that either,
Dave:
Right? The upcoming predictions most likely will be a flat market or up some, but you’ll rarely see a prediction that’s going to say, oh, it’s going to be up another 30% everything this coming year. But you do never know that is ultimately the bottom line. But you’re right. That’s interesting. You don’t have a steady growth of what the market is over a 15, 20 year period.
Steve:
That would make life so much easier if it was just steady Eddie 10% every
Dave:
Year. I can make a pretty strong argument. That would be the end of our job. But
Steve:
Yeah, that’s true. Alright, Dave, so I’ve got a seven lessons from 2024 that I want to go into, but I did want to touch on, the other thing I wrote down is, do you want to spend a minute here talking about Doge, the Department of Government Efficiency? This is the Elon Musk, the what’s his name? Vivek Ram
Dave:
Swami something. Yeah,
Steve:
This is the, I don’t even know if you call it a department. I don’t think there is a department. I think it’s just those two guys sitting around talking about ideas of ways to cut costs in the government. But I do think this has, we’ve certainly anecdotally heard from people who are nervous. They don’t know what does this mean. We’ve certainly heard people who say, okay, here’s what my social security benefit is, as long as Elon and Vivek don’t cut it next month. And then we’ve heard from people who are still working in the government who are saying, well, I’m planning on working another couple years, but I could get forced out the door or could be made very uncomfortable by Elon and Vivek. They could shake things up a little bit here.
Dave:
You know what, it’s probably a good commercial just for always having a plan, a financial plan. If something happens, and this something may very well be either some people are going to jobs just may be lost, that might be part, it is supposedly part of this jobs will just be eliminated. And a big part of it might just be, eh, I don’t want to hang around for this. And that might be, there’s a lot of rumblings about having the feds having to go back to work every day.
Steve:
Oh yeah,
Dave:
Under this new thing, I don’t want to do that. So I think that might be the number one driver of people retiring around here or leaving the government might be simply that one thing might be, nah, I’m not ready for that. But whatever the case should be, you should have a plan together of what if I were to leave tomorrow for any, and even especially as you get older, what if something were to happen to me? Like the job is limited. So I’m not going to say everybody should already have that in place, but that that’s basically what we do. That’s a good commercial for ourselves. Or people who listen, most of the people who listen to this podcast regularly are already clients. But if you know somebody who’s in that position and you think they can use our help, send them more away because that’s basically what we do. And I do foresee a lot of that coming up in the next couple years of people just saying, now’s the time.
Steve:
Oh yeah. I mean, I’ll say, I remember the first Trump administration, we had a couple people who said, you know what? I don’t like where this is going. I’m going to bail out here and retire. And I mean, it’s one of those things that there have to be a lot of factors to decide when you retire, but that could just be one more factor in there. And you’re right. I mean, I think everybody should always have a plan for, not necessarily if Elon Musk decides that I need to go, but what if my health doesn’t hold up and I can’t continue to work this job? Or like you said, what if I got to go back into the office five days a week? I can think of one client offhand who was going to retire several years ago, but now he works from home and he says, well, it turns out I don’t really hate the job. I just hated the commute. He’s like, oh, this is great. On my lunch break, go play tennis or basketball. And yeah, it’s not a big deal. But he hated that commute there. So you’re right. I think that’s the big takeaway is have a plan for any possible eventuality there. Alright, so let’s go through this seven lessons learned from 2024. And I wish I could say I put this together, Dave, but I didn’t. But you know how I know that you are the self-proclaimed biggest commanders fan in the world.
Dave:
Well, let’s put this way. I put in the time and effort not wearing all these outfits all day long or walking around with, but as you know, I put in the time and effort with reading everything and podcasts. So yes, I’m definitely up on it.
Steve:
And so I am not nearly the fan that you are, but I’m a little more Fairweather when they’re doing
Dave:
Well and season ticket holders still,
Steve:
That is a rarity. But I certainly know who are the reporters for the Redskins that I want to pay attention to and listen to. And I like John k, I love his breakdown of things and might not always agree with his opinions, but Chris Russell, interesting to listen to him. Different, all this stuff. Well, when it comes to the financial world, I’ve got my own stable of people that I listen to and people that I pay attention to, stuff that they tweet, stuff that they put out there. And we’ve obviously talked about Barry Ri Holtz in the past, and I love all the guys that he’s got on compounded friends and animal spirits. But there’s one guy at creative planning, huge firm out there, this guy Charlie, I dunno how to say the last name, Ello, but he puts out really good charts. I like anybody who can put together a quality chart that you can look at, you can glean information from it quickly, you can understand it.
I think that’s a skill. So anyway, Charlie puts out some good stuff and he had these seven lessons from 2024. Lemme go through ’em here. The first one, I guess I was already thinking about this, his first one is returns are lumpy. This is what I was just talking about, where the stock market goes up over time, but not all the time. And he’s got this chart here that shows how it is much more common to have returns of 10 to 30% than to have returns of zero to 10%. And just visually here, and I’ll post a link to this on our website here along with the podcast so you guys can see it. But the point is that you get these returns of 20 or 30 or even 40% more often than you get the returns of 7, 8, 9, 10%.
But of course, to go along with that, you get the negative returns, which gives you the long-term average, 9.8% in the stock market. Here’s another one that I think I already referenced to. So price targets given by all the major firms are pretty pointless. So the s and p 500 right now is at right around 6,000. We finished the year, what did we finish the year at last year? I should have had this in front of me, but we finished the year, whatever, if we go backwards from 26% less than that. So somewhere in the low four thousands there. But if you take a look at all the predictions, JP Morgan was the absolute lowest at 4,200. So just a bit outside there swinging against for JP Morgan. But the absolute highest prediction yard deni research was at 5,400.
Dave:
Wow.
Steve:
So we finished the year 25% higher than the average prediction. And there is a saying when it comes to these Wall Street predictions that you keep your job with an 8% prediction each year. Easy way to lose your job is to be too bold either on the downside or the upside, because then it’s easy to point to you and say, oh, look at that dope. He predicted,
Dave:
Yeah, I don’t even know why. Anyone even worries about predictions. Why not just take it with a grain of salt? Nobody should lose their job over a prediction because you can’t predict it. It’s just fun to do.
Steve:
The JP Morgan analyst, I mean this is a little bit inside baseball, but the guy Mike Wilson, who was the JP Morgan analyst, I think he actually did lose his job. They frame it like, okay, he got a different job within JP Morgan, but I think he actually did lose his job this year because he’d been bearish for basically the last two years. And it’s hard to be bearish and be proven wrong again and again. Yeah, you have a certain amount of respect for that, taking a bold stand, but generally speaking, it pays to be.
Dave:
Yeah, it’s interesting. The people who run these huge firms are making bets that when you just work with clients like you and I, like you, don’t do that because it’s been proven to be wrong,
Speaker 4:
To
Dave:
Put your chips in on bullish or bearish and not just stay on a reasonable diversified path. So that’s interesting that that’s even a job
Steve:
And dangerous number three, and I think we should all try to remember this one, but man, is it hard to do in the moment. Embrace panic. Embrace panic. Now, Dave, I’m going to challenge you here, and
Dave:
This is not really fair. I think if you ask me this, I wouldn’t even remember, but do you remember what happened in early August in the stock market, in the investment world going on? I think it was down.
Steve:
Yeah, it was down.
Dave:
Things were down and I forgot why.
Steve:
So it was something called the yen carry trade unraveled. And the ni, which is the Japanese stock market, had its biggest two day decline in history, was down 17% in two days. And the yen carry trade, it’s this whole thing about how you borrow money in the yen, the Japanese currency, and you lend money in the dollar. And I’m not going to claim to fully understand it, but that all unraveled very quickly. Japanese stock market was down and it did. There was a little bit of contagion to the US market, and a lot of those big technology names sold off pretty hard, 10 to 15% within a week or so. Well, that turned out to not be a big deal.
Dave:
No,
Steve:
And that’s a very mini version of, but at the time, it seems like a big deal there. There’s talk about, oh, well this could spread and it could expand, and the tech sector in the US could really be impacted. And if the tech sector goes, so goes the rest of the economy and blah, blah, blah. That’s just a mini example of things that we have lived through. Now back in 2022, oh, we’re going to have this hyperinflation and companies like Microsoft and Apple and Google, I mean they were down 60 and 70%. Embrace the panic, ignore the people who say, Hey, it’s going to go all the way to zero. It’s going to be worthless, blah, blah, blah. Wish that was easier to do, but it’s not. Alright, number four on this, this kind of goes hand in hand, tune out the noise. We talk about this all the time, but Charlie’s got this snapshot here of some articles and you can go back and you could take a look at articles that do not predict well. And he’s got a snapshot from Barron’s presidential election years are bad for stocks that turned out to be dead wrong. He’s got something from Yahoo Finance. Why you should sell off stocks before the presidential election?
That one’s
Dave:
Not too good. That’s not aging well.
Steve:
And I mean you can go on and on cherry picking these things and saying, yeah, okay, that’s probably not good. Broad advice there.
Dave:
Yeah, good broad advice is when things are up like now, be prepared for them to go down and everybody says it, but at the same time, when things are down back to embracing the panic, be prepared for them to go up. You’re always in this state of, at least this is what’s I think for us, you’re always in a state of things aren’t going to be status quo or static. Things are going to happen probably in the opposite manner or at the very least be prepared for it without panicking about it. You have to be, there’s no other way to deal with this emotionally.
Steve:
I did not share this with you, but what you just said is a great lead into number five here. Diversification is simple, but it’s not easy. And I like the way he says that because yes, it is simple. The idea of diversification. All right, spread out your bets. Don’t bet everything in one place. Have a little bit here, a little bit there, but it’s not easy because in hindsight it looks so obvious. Of course, stocks were going to bounce back from a big way in from 22. Yeah, of course. We weren’t going to go into this severe recession and we knew inflation would come down eventually. Gosh, of course we knew that. But it’s not easy to do because what’s the famous quote from Jack Bogle, the founder of Vanguard, is he said, I spent 50% of my career wishing I had more stocks in my portfolio and 50% of my career wishing I had more bonds in my portfolio. And that is oftentimes how people feel is you sit there and you look at the returns and you go, whoa, man, why didn’t I have more in growth stocks, they’re up 36% this year. And then they go down and you go, why didn’t I have more in government bonds? They could have saved me.
Dave:
Or Why didn’t I have more in crypto? I would’ve made 150%, of course. But I mean, you and I are diversification evangelical. So
One thing is to, I’m talking from being an advisor. One thing is to get client to buy into diversification, which is part of it. And because it’s not so easy sometimes just for the reasons you just said, I think the more technical part of a financial advisor, our job is that emotional job to get the buy-in on that. And then the harder part is what we should be doing is within the diversification, what are the best options, or at least in our opinion or your financial advisors. And that is often sometimes changing. That’s the tweaking of an ongoing portfolio management. But yeah, it’s basically those two things. And it is, although it seems simple in hindsight, and when you listen to this podcast, you’re like, of course diversification run to a lot of people and you understand why. I mean, you see what they’ve done. A lot of times the will to not diversify is not from losing, it’s from winning.
Steve:
Oh, totally. Yeah.
Dave:
And not thinking the winning’s ever going to end.
Steve:
I mean, we get it all the time when people, I do think that, I’ll say partially through our education of clients, but we do get people that will look and see those returns and say, well, wait a second, why don’t we have everything in that funder or investment that was up 30%. I don’t think most people actually mean that, because I think they understand that you can’t just pick the winners and ignore the losers. Now of course, in here he has this chart that I always love, which the last 10 to 15 years have been a phenomenal run for large cap US stocks. And when you talk about large cap US stocks, you’ve got to list all those big technology companies. They have dominated returns in a way that we just haven’t seen. I don’t want to say we haven’t seen before, but it’s been a while since you’ve seen a concentration of stocks dominate like that. But a great reminder is that decade from the year 2000 through 2010, during that decade, the s and p 500 lost 9%, not per year, just cumulative 9%.
Speaker 4:
Correct.
Steve:
If you invested a hundred thousand dollars in the s and p 500 in the year 2000, you finished 2009. So you started 2010 with $91,000 in the industry. We call this the lost decade. That’s not the case for all the markets around the world. Emerging markets during that time period were up 162%. Small cap stocks were up 85%. Bonds were up 85% value stocks were up 28%. So this idea that, well, the only thing I need is the s and p 500, and that’ll always be the best. And it’ll never be, nothing else will ever do worse than that. You don’t have to go back too far in history to say that has not always been the case.
Dave:
Right? It’s interesting you to, this is a major marathon, this investment plan that has to support you your whole life, and you have to look at it like this incredibly long marathon requires a lot of emotional patience.
Steve:
That’s for sure. Number six, there is no impossible in the markets, and maybe that’s a little bit extreme, but what he’s talking about here is there’s companies like Nvidia, which if you don’t know, they run or they create these GPUs that run. A lot of these are these processor chips that run a lot of the artificial intelligence that everyone’s so high on. So I don’t know the numbers exactly, but it’s something like 85% market share are the Nvidia chips. Well, 10 years ago, they were just a video game company making chips for video games. They were a $10 billion company. Now they’re worth over $3 trillion. 15 years ago, I think it was oh 8, 0 9, Bitcoin was just this white paper, this idea that some random internet guy who, by the way, still nobody knows who the, what’s the guy’s name? Satoshi, who created Bitcoin. I can’t believe that.
Dave:
I just looked up that guy because I was interested. And it’s like he invented it and he supposedly has a lot, but he can’t find it or some weird thing because nobody,
Steve:
Yeah, he’s,
I mean, whoever he is, he’s got something like a hundred billion worth of Bitcoin, but it’s never traded, never moved, never anything. So I think those are just two examples from the recent past where you would say, oh, there’s no way this is going to be anything significant and Bitcoin, I’m not going to sit here and say, okay, it’s the future of everything. Because I think a lot of the things that people were predicting that it’s become this medium for exchange and it’s going to solve world poverty and blah, blah, blah. I think a lot of that narrative has gone out the window and now it’s just, Hey, this is digital gold. This is a store of value. Why is it a store of value? Because everybody’s agreed that it’s a store of value.
That’s it. People have agreed that there is a place to store value there, so therefore it has value. And I don’t think it’s going away. So that’s something that 15 years ago would’ve seemed impossible. And number seven. Number seven here, this is once again lessons from 2024 list put together, not by me, Steve Giani, although I love the list, but credit to Charlie Ello from creative planning. So number seven is time is greater than money. And I wholeheartedly agree with this. You even referenced this before. It feels like time is going faster and faster every year. I think anybody with kids understands how quickly I blink and all of a sudden I’ve got a 16-year-old who’s learning to drive. How the heck did that happen? That does not seem possible, but everybody’s got their own version of that one there. And he’s got a quote here, time is the only currency you spend without knowing your balance. Use it wisely.
Dave:
I like that one the most.
Steve:
Yeah, and it’s true. We all understand. We’ve got a limited amount of time here, so we’ve got to make the best of it. Alright, those are my, well, not, like I said, not my lessons from 2024, but ones that I tend to agree with. Any lessons you’ve got, Dave, that you want to add on top of that?
Dave:
I don’t, and this has already been a long podcast, so I just want to say happy holidays to everybody listening and Happy New Year. Enjoy the time based on your last tip there.
Steve:
We appreciate all of the clients out there. We thank you for your trust and your business. And we don’t take it lightly either. We don’t take it lightly either.
Dave:
That’s for sure.
Steve:
So happy holidays, no matter what you celebrate. Happy New Year and we will talk to everybody again soon.